A Victorian council will ditch the need for permits for caravans and wheeled tiny homes on existing properties to ease a local housing crisis.

Councillors in Mount Alexander Shire, about 130 kilometres north-west of Melbourne, have decided to change local laws to allow caravans and tiny homes on wheels to set up at properties with existing dwellings.

The change will allow one temporary home per property and will not limit how long the dwelling can remain.

The shift, which came from community feedback, indicates a strained market and shows a grassroots appetite for innovation in housing and property, according to Monash University architecture professor Mathew Aitchison.

“The traditional mode of housing delivery is already at capacity,” said Professor Aitchison, who is also chief executive at federally funded research agency Building 4.0 CRC.

Pumping more money into the existing system could have an inflationary effect if not coupled with new ways to grow productivity or capacity, he said.

“This is a really core example of growing capacity in the industry,” Professor Aitchison told AAP.

“And then also establishing a range of companies that are starting to deliver these tiny houses, in addition to our traditional housing delivery methods, I think is a good thing.”

He said policy certainty was crucial to support a tiny house industry in Australia, but councils around the country were taking very different approaches.

Sunshine Coast Council recently made headlines for evicting residents from four tiny homes on a rural property in the hinterlands for allegedly failing to comply with the planning scheme.

The council allows one temporary dwelling per property and charges $514 per permit.

Professor Aitchison said it was crucial any policies didn’t apply to holiday rentals, or they risked worsening the housing crisis.

“You’d like to see those policies obviously anticipating some of those sorts of things.”

Mount Alexander Shire Council Mayor Rosie Annear said the change would provide some much-needed relief.

“We know that this change won’t fix the housing crisis we’re experiencing in the shire, but we hope it will provide another option for people who are struggling to find a place to live or for those who just want a lifestyle change,” she said.